According to AlixPartners’ inaugural study of industry performance based on an analysis of the major dry bulk shipping companies, industry revenues for the global group fell 18% from 2014 to 2015.
Even more troubling was the collapse in earnings before interest, taxes, depreciation, and amortization (EBITDA) within this group, dropping from $169 million to minus $115 million: a staggering, 168% decline.
Conditions are likely to worsen in 2016. China’s economic slowdown continues to depress demand for basic materials; coal imports alone declined 30% from 2014 to 2015.
Industry consolidation and vessel scrapping—the supply side of the equation—remain well below the levels needed to generate a meaningful rebound in pricing, especially as cheap money and eager shipbuilders sustain the appeal of building new vessels.
Even companies that restructured a few years ago are struggling, and at this point, the majority of companies in our 2016 Dry Bulk Shipping Outlook are at risk of bankruptcy.
The industry should embrace increased consolidation and scrapping, and individual companies should improve operating cash flow.
Company management should proactively contact lenders and other creditors regarding potential problems.
Earlier is better than later: company stakeholders are in the same, listing boat. The industry’s conditions require everyone to pull together for stability both at individual companies and within the entire industry.
Fleet reduction will most likely happen through consolidation. Mergers—or newly formed alliances and pools—could lead to the termination of newbuild contracts in bankruptcy court or could result in increased idling and scrapping.
However, challenges abound there, too. With companies in survival mode, few can finance acquisitions by using their balance sheets.
And because lenders are actively limiting exposure to maritime shipowners, traditional mergers and acquisitions (M&A) seems an unlikely avenue for consolidation in the foreseeable future.
